Sales and Use Tax Annotations

Annotation 475.0168.185

475.0168.185Purchases of Light Rail Vehicles Not Qualifying for Exemption from Tax. A taxpayer wants to purchase vehicles for use as light rail transportation. Taxpayer has purchased a rail line and simultaneously granted back to the seller the exclusive right to use that rail line. The taxpayer does not currently provide commuter rail service on or over the rail line it allegedly purchased from the seller. Taxpayer claims that its purchases of light rail vehicles are exempt from sales tax under the Railroad Revitalization and Regulatory Reform Act of 1976 (4-R Act) and taxpayer should be allowed to issue exemption certificates to its vendors for these purchases.

Revenue and Taxation Code section 6352 provides an exemption for sales of tangible personal property that California is prohibited from taxing under the laws of the United States. The federal law at issue, the 4-R Act, was interpreted by the Board in the memorandum opinion of Bombardier, Inc. (Sept. 1, 1999) hereafter Bombardier.

In Bombardier, the Board held that the 4-R Act's protection from discrimination operates on behalf of commuter rail carriers operating on portions of the interstate rail system inside California because such commuter rail carriers are "subject to the jurisdiction" of the federal Surface Transportation Board (STB). Under the Board's holding in Bombardier, a rail carrier cannot qualify for a "4-R Act" exemption under section 6352 unless, among other things, the rail carrier seeking the exemption is operating on a portion of the interstate rail system that is subject to the jurisdiction of the STB.

Taxpayer has not established that it is a rail carrier subject to the jurisdiction of the STB nor that it is currently providing commuter rail service on and over the rail line it purchased. The documentation provided by the taxpayer merely provides that it might at some future date be able to operate as a commuter rail service on and over that particular rail line it purchased from the seller under certain circumstances. Therefore, taxpayer should not issue exemption certificates to its vendors of light rail vehicles. 1/26/04. (2005–2).